Author: Phil Pecoraro
Model: Biotechnology
Disclosure: None
Since January 1, 2011, the SPDR S&P 500 ETF (NYSE: SPY) has ranged from a low of $126 to a high of nearly $135. At the time of this writing (4/7/11) it is at $133. Likewise the biotechnology ETFs have made progress, with the iShares Nasdaq Biotech Index ETF (NASDAQ: IBB) opening the year around $90/share and currently trading around $102. (Yahoo Finance)
The numbers belie the true story though. Since the beginning of the year, we traded up to that peak S&P figure in mid-February before sitting through a correction, which brought us nearly to where we started the year. Likewise, the biotechnology ETFs such as IBB and BIB went nowhere for nearly two and a half months. Looking back on the S&P and the biotechnology sector, it appears that we have been in a sideways movement or consolidation for most of this quarter. The market now appears to be exiting this consolidation and resuming its previous uptrend.
My portfolio has been largely in cash as a protective measure. As of 4/7 the portfolio has not lost any value from inception. Let’s discuss a few of the month’s positions.
I will put my worst trade out in front and discuss it first: Epocrates (Nasdaq: EPOC).
I have been very familiar with this company’s products since its inception. My medical audience knows its flagship drug-drug interaction program EPOCRATES. It was first available for the Palm Pilot, then Windows Mobile, Blackberry OS and now Google’s Android operating system. EPOC has both individual practitioner and institutional software products. Uniquely, it uses a large base of physicians to test its products and thus has excellent market feedback.
EPOC recently went public. It opened in early February at about $20 per share, briefly traded to a high of $29, and then has steadily sold off. This model purchased it using a 1 million-share/candlestick chart after its third touch of an uptrend line. The technical pattern was solid. The error made was to purchase it before it solidly took off from the trend line. It was sold at a loss (9.6%) and that returned the portfolio to roughly neutral since inception. (Yahoo Finance)
The error was one of position sizing (too large) and of early entry. Insiders continue to hand their shares off to the public. We will buy it again when there is a stable base of some duration and more opportunity to observe how the institutions are trading and valuing this issue. It is a company we eventually want to own.
Corcept Therapeutics (Nasdaq: CORT) is a biotechnology pharmaceutical company. Its main product is CORLUX, a drug for the treatment of Cushing’s disease. This is a disorder of cortisol excess. The drug may have a larger market than initially appreciated, as a percentage of adult-onset diabetics who are poorly controlled also have undiagnosed Cushing’s. Additionally, the drug is being investigated for psychotropic-induced weight gain. Nearly all psychiatric drugs cause or exacerbate the metabolic syndrome, which underlies diabetes and atherosclerotic arterial disease. There are currently no safe, effective medications for weight control for these patients and often they are not candidates for bariatric (weight-loss) surgeries. CORT’s Corlux drug application was submitted at the end of March to the FDA for fast-track (< 6 months) approval. The company is arranging for U.S. distribution channels. In my Covestor model, CORT was traded profitably this month. (Source: Corcept website http://www.corcept.com)
Ilumina (Nasdaq: ILMN) produces DNA sequencing equipment for the biotechnology industry. The equipment is used in both drug discovery and protein sequencing. As such, it is part of the “infrastructure” of the drug and medical therapeutics industry. It was recently sold by this model for a small profit and the stock is completing its retracement. The weekly chart has been slowly and steadily rising throughout 2010, showing steady institutional accumulation. We plan to own it again shortly.
Opko Health (AMEX: OPK) is a medical devices company. Technically, the 1 million candlestick per share volume chart shows a rounded bottom base. It is being held for a possible retracement of the downward move to the 50% Fibonacci level (profit target of $4.27/share).
Thank you for your time and attention.
Phil Pecoraro
